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5 Reasons Occupancy Is Growing Stronger

 

5 Reasons Occupancy Is Growing Stronger

Most people think that when a flood of new supply hits the apartment market, occupancy and effective rents will go down. That’s true in most cases, but not in the first half of 2014, according to Axiometrics research. Even though 180,000 units have come on line in the past year, with thousands more on the way in the third and fourth quarters, occupancy and effective-rent growth have been at their highest levels since almost the turn of the 21st century.

Occupancy in May was 95.0 percent, the highest since Axiometrics started reporting monthly in April 2008. Early-release second-quarter 2014 numbers also show occupancy at 95.0 percent, the best quarter since the second quarter of 2001.

Additionally, the 2Q14 statistics show the quarter-over-quarter effective-rent growth rate at 2.4 percent, the strongest performance since the third quarter of 2000.
So why is this cycle different from most others? Here are some answers:

1. Supply is still in catch-up mode.
The influx of all these new units hasn’t been felt yet because almost nothing was built in the early part of the Great Recession recovery, with financing so hard to get. Even deliveries in 2012 and 2013 grew inventory by only about 1.3 percent, below the long-term average of 1.5 percent. And the onslaught of 2014 deliveries, which is expected to total the most since before the recession, will be below or barely reach the long-term average.

Moreover, the number of new units doesn’t account for demolitions and conversions into condominiums, senior housing, and the like. Demolitions, especially, have been occurring at a growing rate as buildings from the 1970s, 1960s, and earlier become obsolete.

So, this game of catch-up has allowed occupancy to rebound more quickly than usual. Occupancy in some metropolitan statistical areas (MSAs) is the highest it’s been this century, which is leading to a sustained period of strong rent growth.

2. Single-family homes aren’t as popular as they once were.
Apartment construction in the past couple of years is about the same as it was in the last cycle (2003 to 2009), but there’s one big difference: Not as many people are moving from apartments to single-family homes.

 

The homeownership rate of 64.8 percent in the first quarter of 2014, as reported by the U.S. Census Bureau, was the lowest since the second quarter of 1995, when the rate was 64.7 percent. Single-family housing starts have flattened, with negative growth in four of the past 12 months, after a recovery from late 2011 to early 2013. The gap between single-family and multifamily starts has narrowed considerably in the past year.

These figures mean less overall residential supply available to residents, which means higher prices. Even though mortgage-qualification standards are loosening a bit from the noose of two years ago, the price of homeownership is still too high for many people. So, they stay in their apartments longer, even if the rent is somewhat higher.

Which leads us to …

3. Some people are scared of owning.
Many people, especially young adults, know someone who was hit very hard by the foreclosure crisis of the mid-2000s. They saw their parents, an aunt and uncle, a friend’s parents, or a neighbor go through the heartbreaking process of losing their homes. They saw the equity vanish in a minute.

As a result, what was once the American dream of homeownership has faded. Millennials, for the most part, are eschewing the suburban home and its negative connotations and are choosing apartment living instead, especially in the urban core, because they want to be closer to work and play and not have to rely as much on their cars. Occupancy and effective-rent growth have eroded slightly in some urban-core submarkets, but the new units in the center city are, for the most part, being absorbed.

Additionally, life-cycle events, such as marriage and parenthood, are occurring later in life, so Millennials can postpone the move into a single-family home. And many Gen Yers are still paying off student loans, meaning they lack either the credit rating or the 20 percent downpayment needed for a home, according to a July 1 article in Digital Journal.

This means we’re becoming a “renter nation,” as Nightly Business Report called it on its June 20 segment on apartment trends, which featured statistics from Axiometrics.

4. Many Millennials could leave the nest soon (finally!).
During the depths of the recession and into the early part of the recovery, many in the 25-to-34 age cohort were living with their parents because they either didn’t have work or were working at jobs that didn’t pay enough to leave Mom and Dad.

 

As job growth picked up, albeit not as much as the economy would have liked, some of these Gen Yers were able to move into a place of their own and let their parents breathe a sigh of relief—but nowhere near all those living at home could do so. Indeed, more than 5 million people in the 25-to-34 age group are still living with their folks, according to the U.S. Census Bureau.

If job growth were to start improving at a faster rate, more of those young adults could move out of their childhood bedrooms, and the apartment market would be that much stronger.

5. New apartment properties target a new market.
Most of the new supply is priced for the top end of the rental market. What is being delivered are generally Class A, urban-core or prime suburban properties that are likely beyond the reach of renters in existing, older units.

In other words, it’s very much a new breed of renter that will occupy these new units, though, certainly, some renters are upgrading to the newer, more expensive units. Still, that upward mobility, in turn, opens up units for those unable to afford the new, urban-core apartments.

The pent-up demand and decision to rent, not own, have caused a surge in both Class A and B effective-rent growth. Higher-income people are absorbing the newer, top-of-the-line units while others who couldn’t rent before or have found better jobs are lapping up Class B apartments—especially Class B+, which have many of the amenities and attractions as Class A units; they’re just a bit older and lower priced.

Much like the Great Recession and the subsequent recovery differed from the economic norm, the current apartment-market cycle is differing from previous cycles.
Stay tuned to see whether occupancy and effective-rent growth continue increasing through the rest of the year.

Jay Denton is vice president, research, and K.C. Sanjay, senior real estate economist, at Dallas-based research firm Axiometrics. They can be reached at jdenton@axiometrics.com and skc@axiometrics.com.

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Reaching For the Brass Ring

Reaching for that brass ring! That’s a phrase many here probably heard before,and some may know how it came about.For those who don’t know this is where it came from. When we were kids we all road on the carousel ( more commonly known as the merry-go-round) well there use to be an arm that stuck out from a side wall that would drop brass rings in a holding clip. If you where the lucky one to be there at that wright moment you could grab it. When there was no ring there you had to click the holder because it would drop a new ring after so many times. The trick was not to do it so often that it would drop so the person behind you would get it.

Now that is no longer in use but the phrase has lived on. People still use it as they describe their goals in life.

So as you navigate your way to the BRASS RING threw your REI investing career pay attention to what is going on around you. Who’s playing the game,how are they playing, do they keep missing the ring or do they grasp it every time around.

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Put it in Writing

Put it in Writing:Posted on 10. Jul, 2014 by  in Articles, Business

Often, when renting an apartment, tenants are overwhelmed by the amount of information they are given, from the initial apartment viewing, to filling out the application, to getting approved, to finally, moving in.  While it’s important to let all prospective residents know and understand the rules they must abide by when moving into their new apartment home, it’s even more important that the rules and regulations be put into writing.

While standard information such as lease term, rental amount, and deposit information is almost always included in every lease, it’s important that other items are written into the lease as well.  It’s also a good idea to mention these items to residents so that they are aware that they are there.  After all, most tenants do not read their lease from beginning to end.

Here are some things that property managers should ensure are included in every lease and mentioned to each tenant as well:

  • Rental due date.  While most leases will stipulate that rent is due the first of each month, most  management companies will offer a grace period of a few days.  If rent is considered LATE on the 1st, put it in the lease, likewise if the late period starts on the 3rd.
  • The penalty for late rent.  This needs to be spelled out as well.  Tenants must be informed what the penalties will be if the rent is late, and if extenuating circumstances will ever apply.
  • What utilities, if any, are included in the monthly rent.  If gas is included in the monthly rent, state that in the lease.  Likewise, if the tenant is responsible for electric, that should be stated in the lease as well.
  • Apartment alterations.  This can be a sticky area, and one most likely to be abused.  If tenants are required to get permission from management prior to making ANY alterations to the unit, it must be spelled out in the lease.  This includes anything from painting the walls, to installing a ceiling fan.  If this is not spelled out in the lease, tenants cannot be penalized for any property alterations found upon move-out.
  • Authorized landlord entry.  Another sticky area.  Years ago, when I rented a house, the owner of the house thought nothing of using her key to enter the property, clip roses in the backyard, and complain to me about the unwashed dishes in the sink.  Only legal action could keep her out.  While landlords are perfectly within their rights to enter a property during an emergency situation, 24 hour notice is typically required to enter any other time.  It would be in your best interests to put this in the lease.  And obey it.
  • Pet policy.  If your property doesn’t allow pets, put it in the lease.  If you do accept pets, layout any restrictions (dogs under 25 pounds), and any pet deposits required.  Also be sure to note whether the deposit is refundable upon moveout.

By providing your tenants with a comprehensive, in-depth lease, you can avoid any misunderstandings and possible legal issues later.

Should You Stage Your Flip?

Should You Stage Your Flip?

There is something to be said about a neat and tidy house when you are sorting through house after house looking for the perfect home for you and your family. This is something investors should keep in mind when selling their flips. Even though they’ve just put tons of money into making a property beautiful, the final touch-the cherry on top-is the staging.

Staging means adding furnishings and decor in just the right way to make the home feel like a designer home. It means creating an atmosphere or warmth and comfort by adding prints on the walls, mirrors, plants, and pillows in addition to quality furnishings. Most people don’t live in designer homes, so the staging invites them to believe their home will feel this way once they’re in it. Everyone wants to live in a classy, warm home!

So even though your fixed ready-to-flip home is painted impeccably and meets every possible standard a family could have, it could still feel anything but homey. It could simply feel hollow and empty, cold and sterile. Many homebuyers are unimaginative and can’t see what it will look like with lovely furnishings. Staging will invite people in and make them feel welcome.

Staging sells homes that otherwise might not sell. Stagers and real estate agents cite examples of homes that sat on the market empty and unsold for weeks, but got offers almost immediately when staging was added. They also cite examples where competitive bidding wars broke out on properties that couldn’t even get a smile a before they were staged. Staging definitely helps sell homes faster, which can also mean more money.

How Much Staging?

The primary rooms that you will want to appear ‘lived in’ are the living room, dining room, master bedroom, and all bathrooms. These are the rooms that essentially sell homes and it is important to make them appear neat and decorated.

In the dining room, use a table with a flower arrangement at a minimum, but add a full dining set if possible. In the living room, add a couch and coffee table with magazines spread across it and perhaps a throw across the couch. In the master bedroom, add a bed, or at least a lovely large plant in the corner with some throw pillows around to help set the mood of relaxation. In the bathrooms, add a set of attractive bath accessories and an arrangement, plus matching towels.

Who Does the Staging?

If you have a creative side and feel you have a knack for it, you can do the staging. But if you doubt you have that decorator’s gene, then you might want to hire a staging company. The upside to doing it yourself is that you can save significantly on the costs. The downside is that you need to purchase or rent all that furniture and haul it to the house, then haul it back to storage when you’re done. You can use your own furnishings if they’re of good enough quality.

The upside to hiring a staging company is that they do it all for you-and probably better than you could do it yourself. They bring it in and take it out. All you need to do is write a check. If you calculate that cost up front into your selling costs, you won’t be surprised at the end when you’re ready to sell.

Stagers charge by room. If you have the funds for every room in the home then by all means do so. It is a huge selling point, particularly for those who are trying to sell homes quickly. If the home doesn’t sell after the first two weeks or month (you decide the time limit) then you may want to remove the ‘staging’ furniture in order to eliminate the expense.

After doing all that work to fix and flip your rehab property, don’t short yourself at the finish line! Make sure you stage your home for sale, too. Staging a home can absolutely lead to a higher offer and a quicker sale.

 

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